The Global Commodities strategy does not target market inefficiency; rather, it capitalises on how commodities are stored, transacted and valued.
The investment strategy seeks to determine when there is an implied “storage yield” or an implied “storage cost”. The implied yield is compared to the risk free rate (the interest rate on short term bills) to determine when commodities are to be stored or sold. Investment capital is then allocated to the potentially higher yielding asset.
Passive indices such as the GSCI and the CRB have fixed betas to the commodities they represent. For this reason they are exposed to all the price volatility that those commodities may experience. The Global Commodities strategy does not have fixed beta exposures to commodities.
Commodity positions are established with a similar risk reward profile to that of a long synthetic call option, but without the time decay.
Global Commodities offers investments with various weightings across the four main sectors of energies, metals, grains and agriculturals. The commodity portfolio weightings are designed to:
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• capitalize on economic growth and the subsequent demand for raw materials by investing in the energy and metals markets;
• invest in the grain and agricultural sectors to hedge investors from food price increases due to adverse environmental cycles.
Commodities included in each sector represent the benchmark for global pricing with highly liquid futures exchange-traded markets with negligible counterparty risk.
Global Commodities does not invest in any meat contracts.